Coffee master’s advice
What makes a great cup of coffee? According to Starbucks CEO Howard Schultz, the success of his coffee deli is due to upholding extremely high standards for their products and work environment.
Starbucks’ story shows that product authenticity, trust, and brand renewal are essential to keep a business growing.
- How low fat milk threatened Starbucks’ very high standards
- Why spending more than you have might actually not be such a bad idea
- How an experiment in 1988 made coffee-flavored ice cream possible
Sell authentic products
Nowadays, it seems as though there is a Starbucks located at every street corner. Everyone appears to be familiar with the American coffee company. Have you ever wondered how Starbucks came to be such a successful business? The secret to Starbucks’ success is plain and simple. It lies with the brand’s authenticity, achieved by selling only the highest quality coffee.
In 1981, Starbucks was just a small retail store that sold exclusively dark-roasted Italian style coffee, a novelty at the time. By roasting the coffee dark, the coffee grows in strength, gaining a more powerful aroma and the distinct taste of authentic Italian coffee. Moreover, Starbucks never compromised its beans, and became known for its premium-quality, dark-roasted flavor profile that its founders were so passionate about. Those early business decisions lead to an undeniable feeling of authenticity which became engrained in the brand since the beginning.
In 1994, following a frost that devastated much of Brazil’s coffee plants, coffee prices soared from $0.80 to $2.74 in a span of several days, marking an all-time high on the world market. During this coffee crisis, a significant number of shareholders advocated the purchase of cheaper beans, to keep the price of a cup of joe stable. However, Starbucks was unwilling to compromise quality and continued to sell the highest quality coffee they could, by reducing other costs to account for the higher bean prices. After the world coffee market recovered, Starbucks had an even stronger customer base because it held true to its authentic coffee profile.
As mentioned above, Starbucks adheres to uncompromising business practices. This leads us to ask what kind of person does that make its founder? Howard Schultz could probably be described as stubborn. In fact, stubbornness is what led Howard to become associated with Starbucks in the first place.
In 1981, after sampling the brand’s coffee, Schultz was set on becoming head of marketing in the Starbucks retail stores. Jerry Baldwin, the original founder, was interested, but his partners viewed Schultz as having too many new ideas that could result in too much change for the company. Thus, Baldwin chose not to hire Schultz. Despite being devastated upon receiving the news, Schultz became so determined to join Starbucks that he called back the following day to inform Baldwin he was making a terrible mistake. Baldwin, after sleeping on it, became won over by Schultz’ persistence and ended up offering him the job.
It was not a completely smooth journey for Schultz’ after getting hired however. Later on, due to disagreements about brand development, he took leave from the company and opened his own coffee shop, Il Giornale. Raising money for that venture over the course of a year, he pitched to 242 accredited investors, 217 of whom said no. In the face of rejection, Schultz became more stubborn and continued to elicit investors until he was finally able to open Il Giornale. His coffee shop eventually became so successful that he bought Starbucks and grew it into a billion-dollar company.
Thus, two lessons that we can takeaway based on Schultz’ experience are that: (1) Business will present obstacles; (2) A stubborn attitude is crucial to overcome those stumbling blocks.
Build trust among employees
Although being stubborn when dealing with people at the top of the food chain pays off, all employees are vital to the success of your business. And so, your focus should be on building a relationship of trust with your employees.
The Starbucks management team’s effort to nurture that trust is reflected in the company motto: “Treat people like family and they will be loyal and give their all.” Starbucks employees receive great benefits and even part-time employees are offered stock options - Bean Stock - making them partners, not just employees. In addition, employees are encouraged to voice their opinions at the quarterly Open Forums, providing valuable feedback. There is thus a great bond of trust between management and employees. In fact, Starbucks workers are so satisfied by the way they are treated that they have refused to be represented by unions since 1992, stating: “You trusted us, and now we trust you.”
Employees who trust you are more likely to stay with you longer. Starbucks has a lower turnover rate relative to other comparable retail stores - up to 65%, compared with up to 400% per year. Low turnover saves the business time and money on training new hires.
What may not be so obvious is employee retention also helps the business in a more personal way, by improving the customer bond. Regular customers can expect for their baristas to recognize them and greet them along the lines of, “Same as usual?” This familiarity connects the customers to the Starbucks brand, a connection that keeps them coming back. For Starbucks, trust is an invaluable commodity.
Commit to strong values
If a business was to change its core principles on a weekly basis, neither its employees nor customers would be able to keep up with the lack of consistency, which is why it is crucial that a business stands by its values.
As we have discussed, the core value of Starbucks is authenticity. Committing to this principle whole-heartedly has sometimes meant denying customer requests. When flavored coffee beans became available for instance, many customers requested for the ones they could find in other stores. Starbucks, however, refuses to provide them to this day, because the company does not want to pollute its high quality coffee beans with flavoring chemicals. This even goes so far, where a Starbucks’ employee would grind another company’s beans for a customer, but they would not grind flavored coffee beans in their grinders, since some traces of chemicals could be left behind and pollute the other coffee.
On the other hand, however, another core value at Starbucks and in any sensible business is to fulfill the customers’ wishes. So, When Starbucks began to receive customer requests for low fat milk, tension set in. Not willing to compromise either value, the company conducted extensive testing on low fat products to ensure that the authentic taste would not be sacrificed. The low fat Caffe Latte was thus introduced only after it was made certain that it tasted just as good as the original whole fat Caffe Latte.
The way Starbucks fiercely upheld its values as the company grew and changed ought to be admired.
Invest above the curve
Despite the common knowledge that it is wise to be cautious when spending money - to be sparing and only to spend on what one can afford. However, if one wants to be successful in business, one must take the plunge and invest.
In Starbucks’ case, the company’s impressive and rapid growth would not have been possible if it had not started investing in themselves even before they needed it, namely “investing above the curve.”
Today, Starbucks has around 21,000 stores. But, even when they only had 20, Schultz already knew he wanted thousands. And he quickly realized that he needed to invest the most in one area: infrastructure. With plans to expand to 300 stores in the near future and to continue roasting its own beans, Starbucks required roasting facilities that were up for the challenge. Since their current roasting facilities were insufficient, the company had to build a new one.
The company was also in need of a high-performing management team, one that had experience working with huge enterprises and an ability to handle rapid growth. As well, Starbucks needed a sophisticated computer program, custom-built to deal with thousands of sales in hundreds of locations.
Altogether, these changes required a considerable and risky investment. Many investors, concerned by losses that occurred between 1987 and 1989, pressured Starbucks to switch strategies. But, it became clear that the storefronts were making a profit and that the losses were due to investments that had not yet paid off. So stubborn once again, Schultz stuck to his plans and the investments paid off over time. By 1990, Starbucks was operating at a profit and had a firm foundation for further growth.
Starbucks, as do most companies, experienced losses in its initial phases. The losses are acceptable as long they are due to the business investing above the growth curve, as this will result in profits and expansions in years to come.
Choose superior employees and give them autonomy
Senior level managers often feel threatened by their brightest employees, instead of recognizing their abilities as an asset.
Schultz, on the other hand, swallowed his pride and give the reigns to employees with expertise in their specific areas. As an example, when confronted with the task of creating a sales computer program for hundreds of stores, Schultz hired a programmer who had previously worked on McDonald’s sales program. Instead of micromanaging her every step of the way, Schultz trusted her and allowed her develop the Starbucks sales program from scratch. Her program is currently still used worldwide, showcasing how valuable it is to trust that your specialist employees know what they are doing.
In 1989, a new manager, Howard Behar, joined Starbucks. He began to rapidly change the corporate culture and openly disagreed about many tactics, similar to Schultz in his early days at Starbucks. While working with Behar was uncomfortable for some Starbucks managers, the smart ones recognized the value in his criticism and adapted accordingly. With his help, Starbucks shifted from a product-oriented company to a people-centered company. Behar was also responsible for the Open Forums that presented Starbucks employees with the opportunity to give their feedback.
Despite feeling threatened by him, management’s choice not to reject Behar allowed the company to benefit from his great new ideas, ideas that contributed to the successful company it is today.
Revitalize your brand and even products by collaborating with others
If your goal is to get ahead in business, you should undergo brand renewal as the key is to change things before they stop working.
Starbucks applied brand renewal at a scientific level to a product as old and traditional as coffee. In 1988, biomedical scientist, Don Valencia, started experimenting with coffee. He developed a coffee extract, which he refined to the point where it was completely indistinguishable from authentic, freshly-brewed coffee. He then took his idea to a local Starbucks shop, impressing the managers as well as those higher up in the Starbuck hierarchy. Starbucks on boarded the coffee extract, leading to the creation of products such as coffee-flavored ice cream and ready-to-drink bottled beverages. In addition, these products could be sold in supermarkets, increasing Starbucks’ popularity and market.
In 1994, Starbucks began working with Pepsi to distribute cold coffee drinks, allowing Starbucks to expand into areas where there were no Starbucks stores. However, the collaboration was not all smooth sailing. The two companies could not have been more different at the onset: Starbucks was a small business in which people worked on several different projects simultaneously, whereas employees at Pepsi focused on one project at a time. However, instead of rivaling each other, both companies viewed these differences as complementary, and looked for win-win solutions. This way, they were able to introduce the bottled Frappucino to the market, which gained so much popularity that stores were already selling out soon after its release.
Working with another company on a joint venture to renew your product can be very rewarding, with potentially paving an entrance to the international market.
Stay true to your roots and ensure employee satisfaction
All too often, big chains sell their soul to stay ahead of the game, but Starbucks does not fall into this category. Instead, the company stays intimate with its employees - not an easy task when there are about 25,000 of them.
By offering Bean Stock (stock options), Starbucks creates a sense of partnership among its employees. Moreover, the company offers higher hourly wages relative to industry standards as well other benefits, such as health insurance, for employees and their partners. Schultz communicates personally with each store via email and voicemail, and each region holds quarterly meetings for store managers so that management remains in touch with the base. A survey in 1996 revealed that 88% of the employees were satisfied with working at Starbucks and 89% were even proud to work at Starbucks, indicating an exceptional corporate culture.
Not only does Starbucks go out of its way to take care of its employees; it also upholds environmental principles. For instance, its disposable paper cups are a prevalent environmental issue. Single use disposable paper cups generate an uncalled-for amount of waste, not to mention that hot beverages sometimes call the need for two cups. Although disposable cups continue to be a necessary part of the business, Starbucks developed cup sleeves, eliminating the need for a double cup when it comes to hot beverages. The sleeves are made of half the material as a cup, and protect people’s hands from the heat, all the same. In addition, reusable cups are also sold to encourage people to minimize waste. The business also conducts Green Sweeps, where employees pick up garbage in their neighborhoods.
Although every large company risks losing the small business culture from which it began, taking Starbucks as an example, it is more than feasible to continue to strengthen the brand, authenticity, and employee- and customer-loyalty.
If you desire to mirror the success of Starbucks: Be authentic. Be stubborn. Build trust. Give autonomy. And don’t forget your roots but actively renew your brand by investing above the curve and collaborating with others.